The Pipeline Management Challenge: How to Organize Innovation
Today, more than 2,300 drug candidates are currently in clinical trials or at the FDA for review (PhRMA 2007). By far, the most drugs in the pipelines of pharmaceutical and biotechnology companies target the therapeutic area of oncology which covers all t
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The Pipeline Management Challenge: How to Organize Innovation
“Pharmaceutical companies can best create value by finding a flow of innovative medicines that answer the needs of doctors and their patients. The companies that will succeed in the long term are the ones that best sustain this flow.” Fred Hassan, Chairman, CEO and President, Schering-Plough
The Relevance of Pipeline Management Today, more than 2,300 drug candidates are currently in clinical trials or at the FDA for review (PhRMA 2007). By far, the most drugs in the pipelines of pharmaceutical and biotechnology companies target the therapeutic area of oncology which covers all types of cancer related diseases. Cardiovascular, central nervous system and respiratory related diseases are other important therapy areas. Depending on the size of their current business, pharmaceutical companies are required to deliver between two and four new drugs every year in order to maintain or exceed the double-digit growth expectations. Given the high attrition rates in drug development, they have to fill the R&D pipeline with as many new drug candidates as possible. The pharmaceutical industry, however, is suffering from a lack of genuine innovation (Reuters 2003a). In many cases, pharmaceutical companies rely more on patent protection of existing drugs than on the invention of new drugs. Ironically, over-reliance on patents (intended to encourage investment in innovation) is reducing R&D productivity by diverting attention towards protecting existing product revenues from generic competition. This is a successful short-term strategy, given the relatively low costs of post-patent expiration competition vis-à-vis the huge investments required to develop a new molecular entity. But patent defense generates
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The Pipeline Management Challenge
only incremental revenue compared to the potentially huge gains from new innovative products, and it creates an over-reliance on in-licensing to fill long-term revenue gaps. Relying on blockbusters to drive the required sales growth, irrespective of company size, is an accepted practice provided there is sufficient depth in the pipeline to continually replace revenues lost to generic competition. However, historical analysis of the blockbuster market in 2000 by Reuters (2003a) suggests that this growth strategy has its weaknesses (see page 6). As mentioned earlier, the revenue forecast of year 2000 blockbuster drugs through to 2008 indicated that there will be an overall 3.8 percent decline in blockbuster sales over this period. Hence, companies can no longer simply rely on blockbuster products alone to drive double-digit revenue growth. Pharmaceutical companies will have to compensate for declining blockbuster growth by other means. In a first step, however, they have started to raise the investor community’s attention to this trend. GlaxoSmithKline and Novartis have issued warnings not to underestimate the significance of declining blockbuster sales, given that the industry suffers from weak latestage pipelines and new chemic
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